Annual Report and Accounts 2012 - Speedy Hire plc

Financial statements 75
18 Financial instruments
The Group holds and uses financial instruments to finance its operations and to manage its interest rate and liquidity risks. The Group
primarily finances its operations using share capital, retained profits and borrowings. The main risks arising from the Group’s financial
instruments are credit, interest rate, foreign currency and liquidity risk. The Board reviews and agrees the policies for managing each of
these risks on an annual basis. A full description of the Group’s approach to managing these risks is set out below.
The Group does not engage in trading or speculative activities using derivative financial instruments. A Group offset arrangement exists in
order to minimise the interest costs on outstanding debt.
Fair value of financial assets and liabilities
The fair values of financial assets and liabilities, together with the carrying amounts shown in the balance sheet, are as follows:
Carrying
amount
£m
31 March 2012 31 March 2012
Fair value
£m
Carrying
amount
£m
Fair value
£m
Trade and other receivables 85.7 85.7 95.3 95.3
Cash 0.2 0.2 0.2 0.2
Bank overdraft (0.2) (0.2) (1.1) (1.1)
Secured bank borrowings (76.3) (76.3) (112.7) (112.7)
Finance lease liabilities – – (0.5) (0.5)
Interest rate swaps and caps, used for hedging (0.7) (0.7) (0.6) (0.6)
Trade and other payables (44.5) (44.5) (30.0) (30.0)
(35.8) (35.8) (49.4) (49.4)
Unrecognised gain/(loss) – –
Basis for determining fair values
The following summarises the principal methods and assumptions used in estimating the fair value of financial instruments reflected in the
table above:
(a) Derivatives
Broker quotes are used for all interest rate swaps and caps.
(b) Interest-bearing loans and borrowings
Fair value is calculated based on discounted expected future principal and interest cash flows.
(c) Trade and other receivables/payables
For receivables/payables with a remaining life of less than one year, the notional amount is deemed to reflect the fair value. All other
receivables/payables are discounted to determine the fair value.
Interest rates used for determining fair value
The interest rate used to discount estimated cash flows, where applicable, has been estimated at 11.7% (2011: 12.3%).
Fair value hierarchy
The Group and Company’s financial instruments relate to cash flow hedges which are carried at fair value in both the current and prior
year. The valuation is based on inputs other than quoted prices but which are directly observable (i.e. as prices) (classified as Level 2 in
accordance with IFRS7).
Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual
obligations, and arises principally from the Group’s receivables from customers.
The exposure to credit risk is monitored on an ongoing basis. Credit evaluations are performed on all customers requiring credit over a
certain amount.
Speedy Hire Plc Annual Report and Accounts 2012
Financial statements